Uranium: The Calm Before The Storm?

the seasonality of uranium equities it tends to follow end user demand so that being utility buying patterns uh the late spring and the summer are typically a quiet time for utilities with most of the buying interest picking up into august into the world nuclear association symposium which is in early september it was actually just last week and then the equities generally continue to accelerate through the fall and into the winter hi it's greg groener vice president senior investment advisor counter continuity wealth management in corner wealth management now welcome to the channel where we help you make sense of the financial world now if you like my content like my videos please feel free to click the subscribe button or share drop a comment love to hear from you now today my guest is canaccord genuity uranium analyst kenny lachapelle hey katie how are you hey greg i'm good how are you thanks very much for joining me now you know last time we had you on we talked about how you were thinking that 2020 was probably the turning point for uranium now we're heading into fall of 2021. uh has anything changed your mind on that or can you expand on that a little bit yeah it's a good question um i'd say if anything there's a couple things that have probably reinforced that view so just quickly looking on the demand side i think we've seen government support improve over the last 12 months as countries continue to look to decarbonize so we saw china release their 14th five-year plan earlier in the year and that was pretty bullish on on nuclear uh it was it was better than than we had expected it's it's basically calling for 40 expansion their nuclear capacity by 2025 with another gigawatts under construction at that time and then we've also seen india come out and commit to some pretty aggressive nuclear targets and then if we even take a look at the north american as well as the european markets i think we've seen more of a constructive view on demand so in particular we saw the u.s rejoin the paris agreement in january and then more recently we've looked them uh we've seen them look to actually subsidize the domestic nuclear fleet so so actually just yesterday the illinois senate voted in favor of an energy bill that will prevent excellent from shutting down three of the nuclear reactors that are in state there yet on the supply side uh what we've seen is a market that continues to be highly concentrated and extremely fragile so on top of the cove in 19 disruptions that we saw last year rolling into a little bit of um we saw that significant amount of supply come out of the market but recently what we've also seen is a rise in purchases of physical uranium by both non-traditional players so so most notably most recent being the sprott physical uranium trust then we've also seen some purchases by uranium developers what this effectively means is that pounds are being purchased and held by users that are not utilities so therefore these pounds are not being used to necessarily fuel a nuclear reactor but rather they're being held to tighten supply and drive prices higher and this strategy is working we've seen spot prices right spot prices rise over 40 percent in just the last month alone since sprott has started purchasing and and i'd be happy to jump and and dive deeper into this broad topic as well yeah let's talk a little bit more about that because uh i mean that that's a 40 increase just over the past month that's that's a huge uh rise in prices no uh when we talk a little bit more about uh you know just how that's playing out in the marketplace yeah so just as some background for viewers so the sprott physical uranium trust is is the newly formed version of your indian participation corp so the goal of the trust is similar to its predecessor in upc and that it buys and holds uranium to provide investors with exposure to movements and spot price there's really one primary difference between upc and fraud and this is the fact that under the new trust format of this rot physical uranium trust the company can initiate an atm program so rather than going to market issuing shares and going ahead and sort of doing a large one-time purchase of physical sprout is constantly issuing units and raising cash to purchase uranium so this is adding a constant bid to a very thinly traded market for context on august 17th sprott launched a u.s 300 million atm program in the last four weeks alone they've sold nearly all of these units and they've purchased over 6.6 million pounds of uranium they've essentially been purchasing in the small market every single day um and as a result we've seen the small price for uranium rise over 40 in in just a month so so the spot price right now is around 44 dollars a pound this is the highest level since 2013 and and this move and sprawl prices has really been what's driving the rally in the equities over the course of the last month and then just looking forward um it doesn't look like spots slowing down anytime soon they just upsized the atm to 1.3 billion so this adds an additional 1 billion units in purchasing power and because sprotts the physical trust continues to trade at a substantial premium to its nav it's pretty well positioned to buy pounds well above the current spot price which would drive further upward pressure on prices yeah another i mean that's an interesting point and you're talking about the uranium equities um you just put out a an update and you said seasonality and you were asking you know is this the calm before the storm uh what are we seeing in the market can you expand on that just a bit yeah so definitely when we published that note uh just a couple weeks ago most of the equities had traded down to somewhat flat over the summer uh and this was before sprott had stepped in uh the key point that i want to get across with that note was that this was sort of normal and somewhat expected especially in an environment where the price of uranium wasn't doing a whole lot over the summer the seasonality of uranium equities it tends to follow end user demand so that being utility buying patterns the late spring and the summer are typically a quiet time for utilities with most of the buying interest picking up into august into the world nuclear association symposium which is in early september it was actually just last week and then the equities generally continue to accelerate through the fall and into the winter if you were just to google even a seasonality chart for a company such as camaco you can see that october through december have typically been very very strong for the uranium equities so what we're seeing now is actually strengthen the equities a little bit earlier and that and that's being driven by fraud uh but i do think we could see some seasonality accelerate into your end as well yeah can we talk about maybe some of the other drivers that might be pushing equities towards your end here yeah so um i'd say there's a couple things that that could be positive towards your end uh the first and and sort of for the the big one would be continued purchasing vicerot um so the physical uranium trust is is going to continue to purchase in my opinion i think they're going to continue to squeeze the market and we'll continue to see a rally in the small price at least in the near term um second would be a potential re-entrance of utilities into the term market in a significant way which in my mind underpins fundamental demand the utilities have been have been somewhat quiet but um just to be clear we've been advocating for some time at canaccord that the uranium price needs to be higher to incentivize mine restarts as well as new production pricing over the last decade has been nowhere near sustainable uh up until just a month ago pricing was around 30 a pound but we are starting to see pricing get a little bit more to sustainable levels now and and the real question i guess is how sustainable is this rise in prices and and how and when will utilities react to the rising price uh it's sort of one will they get spooked by rising prices and rush to secure term contracts or two will they be patient and attempt to maybe outlast the wave of buying from sprott either way i think it's only a matter of time before we see utilities return to traditional contracting and with spot prices now starting to to better reflect the actual cost of producing a pound of uranium i think producers and developers are in a are in a much better uh spot to negotiate so it should be a very exciting couple months into near into year end and then as well into uh 2022. interesting now you know last time we talked to we talked about you know some of the things were happening in 2020 was cigar lake had been shut down and we had some kazakhstan uh production that was shut in do you see that coming back online or what would be the uh the thought process before you know taking those big steps to start bringing that back online and how would that maybe affect the market yeah so so these these are sort of temporary supply disruptions so what we saw um was kamiko took down the cigar lake mine twice so they took it down from april to august and then again from december uh through to april of 2021 so the mines actually they've since ramped up um so so they're back up and going now and but the one thing that i would note is they need to make up for lost production uh so as a result camaco will be an active purchaser in this fault market over the remainder of this year they've only purchased about four million pounds to date this year that was those disclosing their last quarterly earnings but they've guided to 11 to 13 million pounds of total purchases so they still have quite a substantial amount of purchasing remaining and then in terms of casata prom uh whose operations are always are also back up and running um they've had some ongoing impacts for covid due to sort of mine development as well some supply chain issues so their production is actually currently tracking below their full year guidance so because out of problem has also come out and said that they're likely to be active in the spot market into year-end um and that would be a function to make up for some of that lost production as well as shore up inventory levels so overall we've got oh go sorry go ahead oh just gonna just to sort of summarize overall we have camaco casata prom as well as the sprott physical uranium trust all competing for the same material in a rising pricing environment so that's a a pretty interesting dynamic uh into your end yeah that's what i was going to comment on i mean that's that's uh in fact the shutdowns that we had earlier earlier last year and earlier in this year are actually probably you know bullish for the the price if they're going to have to buy it in the stock market which usually don't see happening uh interesting now uh you know just as we wrap things up right now any other catalyst that you see going towards uh year end we've got seasonality looks like behind us we've got strong buying and it looks like some of the producers are actually going to be doing buying in the spot market as well uh what do you see next or what uh you know what things do we have to watch out for yeah we could see any any positive momentum just coming out of as well changing government policies or any announcements from that perspective we just had the world nuclear association symposium last week and i think one of the key highlights of that was they were emphasizing the role that nuclear will play in meeting uh global climate change goals and the un meetings coming up and um it'll just be interesting to see where nuclear sits in those discussions and i think we'll need nuclear to work sort of alongside renewable sources in meeting these climate change goals so having governments work together whether that's ongoing research and development or looking at ways to um fast track sort of the approval of new technologies such as small modular actors will be really interesting so any any commentary there will also be a good catalyst for uranium well hey thanks for taking the time to join me please come back in it's always great to have you katie las chapel don't forget to check out my web page gregwerner.com take a look around [Music]

Channel: Greg Goernert

Views: 10,352

Rating: 4.9709091 out of 5

Keywords: Uranium, Sprott, Rick Rule

Id: 8pNEWS7WQhQ

Length: 11min 34sec (694 seconds)

Published: Fri Sep 17 2021

Reddit Comments

[u/Laty69]

Nothing new for me personally, but a nice summary and confirmation bias. Thanks for sharing!